We are spending more money than we have ever spent before, and it does not work. After eight years we have just as much unemployment as when we started, and an enormous debt to boot.

It comes from Harry Morgenthau, FDR’s secretary of the treasury, via Burton Fulsom’s flawed history. It’s a darling of conservative pundits who want to say that government spending cannot reverse an economic downturn. Indeed, their whole case against government spending seems to hinge on this one moment, a supposed moment of clarity from Morgenthau.

Government spending would not in itself be the problem. It increased dramatically through the 1940s. But as easy as it is to argue in its favor, I’ve yet to read some dissection of Morgenthau’s statement … something that puts it in context to show that it is a less powerful assesment that conservatives would think. Indeed, the passage lacks any depth, and reads more like exasperation rather than reflection, and given that Morgenthau often disagreed with Roosevelt on spending (though not necessarily on its application), there is plenty of room for a historian to debunk the conservative interpretation.

Morgenthau, at the very least, represented the concerns of American businessmen that the goals of the New Deal were not clearly defined, and the consequential costs were excessive. Were they temporary or permanent? According to HW Brands, Morgenthau confronted Roosevelt with this issue, claiming that recent declines in productivity reflected businessmen’s frustration with Roosevelt’s opacity. FDR relished his caginess, refusing to choose between temporality and permanence, and preferring to keep that information from those whom he felt opposed his policies. Eventually, Roosevelt would associate economic security with stable democracy.

This is only a small bit of context. Beyond this moment, there is little evidence of Morgenthau’s sustained opposition to the New Deal, or that his proclamation was a blanket judgement of New Deal policies. But the bigger problem is that this is one quote, one full of ambiguities (what else was said at the same Congressional committee hearing?). Ultimatley, there are more fruitful ways to use history of the Great Depression to bolster their arguments. This isn’t it.

The Great Depression is far from my area of expertise, though I know enough about the questionable aspects of Burton Folsom’s history (particularly the skewed employment numbers and the light treatment of political volatility). What I find interesting is that this debate about the effectiveness of New Deal policies seems to have found distant shores. Australia’s PM, Kevin Rudd, not only referenced the New Deal in justifying state intervention in financial markets and aggressive economic stimulus, but Australian columnists have taken up the arguments of American conservatives in opposing Rudd’s proposals. Referencing Fulsom, Michael Costa wrote:

What is not in dispute is that the US Federal Reserve made the Depression worse by mismanaging monetary policy. At the onset of the Depression, the Federal Reserve adopted a deflationary monetary policy that added to its severity. The money supply contracted by nearly one third in the Depression’s first four years. That’s why present Fed chairman Ben Bernanke moved quickly to increase liquidity.

Without discussing the merits of Folsom’s arguments, I wonder how Costa came to the conclusion that this is “not in dispute”, considering Fulsom’s arguments fly in the face of many American histories of the Depression, and that Fulsom has gained currency mostly among politicians, almost all conservative. (Perhaps a better critique would come from Alan Brinkley’s The End of Reform: Roosevelt and Morgenthau found that state intervention brought stability, but limited potential growth. Consequently, Rudd’s plan to reinvent capitalism under state guidance might not provide as much bang in the long term.)